撮要

This case is set in 2021; Kingold Jewelry, Inc. (武汉金凰珠宝股份有限公司) (NASDAQ: KGJI), was one of mainland China’s largest gold processors and gold jewelry manufacturers. In 2002, Jia Zhihong (贾志宏), chairman and CEO, founded the company, which was based in Wuhan, Hubei Province. In August 2010, it was listed on NASDAQ using “backdoor listing.” It sold gold jewelry, ornaments, and investment-oriented products. Between 2015 and 2020, Jia decided to increase Kingold’s reliance on gold as collateral to obtain loans at around CNY20.6bn (USD3.2bn) from 14 Chinese commercial banks and trusts across different provinces, including China Minsheng Trust Co. Ltd., Hengfeng Bank, and Dongguan Trust Co. Ltd. The 83 tonnes gold bars were largely secured physically in bank vaults after independent testing institutions certified them and insurance companies examined them; other financial institutions did not have access to the gold bars.

In late 2019, Kingold defaulted on a loan repayment to Dongguan Trust, and in February 2020, the bank demanded to liquidate the collateral and discovered the fraud. In June 2020, a Beijing-based financial news outlet, Caixin, published a story about Kingold’s counterfeit gold scandal that was initiated by Dongguan Trust and other defaulted loan cases. On 11 August 2020, Kingold filed for voluntary delisting from NASDAQ without filing its overdue financial reports. On 26 August 2021, the Wuhan court began to press charges against Jia and Kingold, and detained Jia and other personnel.

How could Kingold’s corporate governance be improved to disallow such a situation and protect lenders and investors? How could lenders reduce their credit risk in accepting gold bars as collateral when they could not fully rely on their clients, independent testing companies, and insurance companies? Do you consider US regulators’ listing and other regulations were adequate for foreign companies? Did Friedman LLP as auditors make a best effort to examine Kingold’s assets and present its client’s financial information fairly?

學習目標

1.   Explore methods to improve Kingold’s corporate governance to protect lenders’ and investors’ rights.

2.   Learn about the credit risk faced by financial institutions and insurers, and to examine examples of fraudulent cases.

3.   Understand US regulators’ listing rules and regulations for foreign companies and the changes in policies between 2020 and 2022.

4.   Analyze whether Friedman LLP as auditors made their best effort to examine Kingold’s assets and present its client’s financial information in a fair manner.